You believe that Alpha stock which has a beta of 1.32 will return 16.0% this coming year.The market is expected to return 11.4% and T-bills return 3.8%.According to CAPM,which one of these statements is correct given this information?
A) The stock is currently underpriced.
B) The stock plots below the security market line.
C) The risk premium on the stock is too low given the stock's beta.
D) The stock plots to the left of the market on a security market line graph.

Question

Quizplus · Accepted Answer

E(R) = 3.8% + 1.32(11.4% − 3.8) = 13.83% < 16%

You Believe That Alpha Stock Which Has a Beta of 1.32